Consumer Law & Policy Blog

Dietz v. Perez: Virginia Jury Finds Both Sides at Fault, Awards No Damages

A  bit over a year ago, I discussed on this blog a petition that we filed in the Virginia Supreme Court seeking to set aside a preliminary injunction issued by a state trial judge in a defamation suit filed by a Maryland contractor, Christopher Dietz, against a Virginia woman, Jane Perez, who had posted reviews on Yelp and Angie's List complaining about the contractor's shoddy work as well as the disappearance of some jewelry from her home while his staff had keys to the condo.  We argued that such an injunction was a prior restraint that was necessarily entered on less than a full record, and the determination of whether any relief was appropriate should await a full trial before a jury of their peers.  The Virginia Supreme Court reversed, almost by return mail.

That trial was held this past week, both on Dietz's suit against Perez and Perez's own counterclaims for the damages he caused her.  Perez was represented by a pro bono lawyer, the redoubtable Raymond Battocchi.  Dietz spent what I am told was "a lot of money" on a succession of private attorneys.  The upshot after five days of trial was a split decision -- the jury decided that each side had defamed the other, but decided to award no damages to either.

At one level, consumers may take this as something of a vindication of their right to criticize businesses, although they might be wise to make sure they have libel coverage in their homeowners' policies in case they are not as luck as Perez was to find a public-spirited lawyer willing to defend them without charge.  But  one can also see the jury decision as having told the parties, a pox on both your houses.  It could be, in that sense, a reminder that just because someone has said something you don't like about them, and even if what they said is in some way a bit false, that does NOT mean it makes any sense to run to court and ask judges and juries to spend their time worrying about your dispute.

Indeed, the coverage in Remodeling, which covered the case intensely becuase of its significance for contractors, includes this interesting reference to Dietz' statements about the case:  "Dietz said he lost five to 10 proposals worth an estimated $500,000 because of Perez's reviews, and that his business suffered as a result of visibility of the case and the subsequent appeal to the Virginia Supreme Court."  It would be interesting to learn whether it was the reviews themselves, or the publicity given to the fact that this is a contractor who sued a customer, not to speak of the self-created amplification of Perez' review on his work, that had the greater impact on his business.

American Banker: Cordray Loses Cool After House GOP Attacks

by Jeff Sovern

Here (behind a paywall). Cordray was testifying before the House Financial Services Committee and, according to the article, was subject to some attacks that seem absurd, at least to me. Excerpt:

[Rep. Stevan Pearce, R-N.M] suggested that data collection undertaken by the CFPB could be passed onto political campaigns.

"But I will say that the collection of data like you’re collecting has tremendous value in political campaigns and I worry that there might just be someone down the system who might release that information,² Pearce said.

I have not yet listened to this hearing, but the issue of the Bureau's data collection has routinely come up in other hearings, and Cordray has stated more than once that much of the data the Bureau receives about consumer borrowing comes without information identifying the particular consumer.  It's hard to see how information that doesn't identify specific people would be of value in a political campaign.  When consumers complain directly to the Bureau, the Bureau would know who they are--except that's information that consumers decide to provide the Bureau.  Meanwhile, businesses collect plenty of information about consumers they can identify.  I wish Representative Pearce cared more about the information businesses collect, which the businesses can use for their own purposes (and who knows if they sell it to political campaigns?  Is that where Pearce got the idea?), as opposed to the information collected by the Bureau, which is supposed to be used only for the benefit of consumers.

Representative Pearce is also quoted in the article as saying that Cordray is waging war on the poor. Would those be the poor people for whom the Bureaus has secured refunds? Incidentally, according to the Center for Responsive Politics, commercial banks have given more to Pearce's current reelection campaign than all but three other industries and his fourth largest contributor is a bank.

 

Fourth Circuit: FDCPA Gives Consumers the Right to Oral Disputes

Does federal law require debt collectors to give consumers the right to make oral disputes (as the Second and Ninth Circuits have held), or may debt collectors insist that any disputes be made in writing (as the Third Circuit has held)? Today, the Fourth Circuit issued a short published opinion agreeing with the Second and Ninth Circuits. I argued this case back in October and am pleased to see that the court adopted the straightforward plain-meaning analysis urged in our opening and reply briefs.

CFPB brings enforcement action against mortgage originator alleging illegal kickbacks

The Consumer Financial Protection Bureau brought an administrative enforcement action yesterday against morgage originator giant PHH Corporation alleging, among other things, violations of the anti-kickback provisions of The Real Estate Settlements Procedures Act (RESPA). To quote the agency's press release:

Today, the Consumer Financial Protection Bureau (CFPB) initiated an administrative proceeding against PHH Corporation and its affiliates (PHH), alleging PHH harmed consumers through a mortgage insurance kickback scheme that started as early as 1995. The CFPB is seeking a civil fine, a permanent injunction to prevent future violations, and victim restitution. ... Mortgage insurance is typically required on loans when homeowners borrow more than 80 percent of the value of their home. ... Mortgage insurance can be harmful when illegal kickbacks inflate its cost. Increasing the burden on borrowers who already have little equity increases the risk that they will default on their mortgages. [RESPA] protects consumers by banning kickbacks that tend to unnecessarily increase the cost of mortgage settlement services. RESPA also helps promote a level playing field by ensuring companies compete for business on fair and transparent terms. A CFPB investigation showed that when PHH originated mortgages, it referred consumers to mortgage insurers with which it partnered. In exchange for this referral, these insurers purchased “reinsurance” from PHH’s subsidiaries. Reinsurance is supposed to transfer risk to help mortgage insurers cover their own risk of unexpectedly high losses. According to today’s Notice of Charges, PHH took the reinsurance fees as kickbacks, in violation of RESPA. The CFPB alleges that because of PHH’s scheme, consumers ended up paying more in mortgage insurance premiums. ... The Bureau believes that from the start of the arrangements, and continuing into at least 2009, PHH manipulated its allocation of mortgage insurance business to maximize kickback reinsurance payments for itself. PHH Corporation and its affiliates are specifically accused of:

Kickbacks: Over the approximately 15-year scheme, the CFPB alleges that PHH set up a system whereby it received as much as 40 percent of the premiums that consumers paid to mortgage insurers, collecting hundreds of millions of dollars in kickbacks;

Overcharging Loans: In some cases, PHH charged more money for loans to consumers who did not buy mortgage insurance from one of its kickback partners. In general, they charged these consumers additional percentage points on their loans; and

Creating Higher-Priced Insurance: PHH pressured mortgage insurers to “purchase” its reinsurance with the understanding or agreement that the insurers would then receive borrower referrals from PHH. PHH continued to steer business to its mortgage insurance partners even when it knew the prices its partners charged were higher than competitors’ prices.

 

Suffolk Law Review Symposium on Credit Scoring and Reporting Now Available Online

Here. Here's a list of the articles:

Credit Reports and Employment: Findings from the 2012 National Survey on Credit Card Debt of Low- and Middle-Income Households

 by Amy Traub ·

Medical Debt and Its Relevance When Assessing Creditworthiness

by Mark Rukavina 

Discriminatory Effects of Credit Scoring on Communities of Color

by Lisa Rice and Deidre Swesnik

The Misconception of the Consumer as a Homo Economicus: A Behavioral-Economic Approach to Consumer Protection in the Credit-Reporting System

by Adi Osovsky 

Selling Consumers Not Lists: The New World of Digital Decision-Making and the Role of the Fair Credit Reporting Act

 by Ed Mierzwinski and Jeff Chester 

Adapting Credit Scores to Evolving Consumer Behavior and Data

by Frederic Huynh 

The Legal Framework of Consumer Credit Bureaus and Credit Scoring in the European Union: Pitfalls and Challenges—Overindebtedness, Responsible Lending, Market Integration, and Fundamental Rights

Federico Ferretti 

Foreword: Symposium On Credit Scoring and Credit Reporting

by Terry Clemans

Compromising the Safety Net: How Limiting Tax Deductions for High-Income Donors Could Undermine Charitable Organizations

by Patrick E. Tolan, Jr.

Making Law with Lawsuits: Understanding Judicial Review in Campaign Finance Policy

 by Rebecca Curry 

Second Circuit tosses suit against Fed for AIG takeover

A succinct summary of today's opinion in Starr Int'l v. Fed. Reserve Bank of N.Y.:

This suit challenges the extraordinary measures taken by FRBNY to rescue AIG from bankruptcy at the height of the direst financial crisis in modern times. In light of the direct conflict these measures created between the private duties imposed by Delaware fiduciary duty law and the public duties imposed by FRBNY’s governing statutes and regulations, we hold that in this suit, state fiduciary duty law (including the state law cause of action for aiding and abetting breaches of state law fiduciary duty) is preempted by federal common law.

 

Tenth Circuit rejects "one-sidedness" as defense to arbitration clause

Even as the Supreme Court has aggressively wielded the Federal Arbitration Act to preempt state-law contract rules that prevent arbitration, state courts have still been able to use traditional contract doctrines to invalidate arbitration agreements that are unfairly "one-sided" -- for instance, where an agreement provides that a business gets to bring its claims in court but the consumer must bring her claims in arbitration.

In a decision that could have far-reaching implications, the Tenth Circuit rejected that reasoning yesterday in THI of New Mexico v. Patton, holding impermissible (and therefore preempted) under the FAA the New Mexico state courts' position that a business-goes-to-court-but-consumer-goes-to-arbitration agreement is unfairly one-sided. Because the FAA requires courts to treat arbitration as equal to litigation, reasoned the Tenth Circuit, courts cannot assume that consumers are being treated unfairly by being forced to arbitrate their claims even though the business who drafted the arbitration agreement chose to retain its own access to courts. That view, according the Tenth Cicuit, is premised on the notion that arbitration is inferior -- a view that contravenes the FAA. (One wonders: if arbitration is so great, why would a business force only its prospective opponents to go there, while reserving its own right to go to court?)

If this reasoning is picked up in other courts, consumer advocates will have lost a critical tool in challenging arbitration agreements.

Paper on the Ethics of Payment Mechanisms

James Angel of Georgetown's Finance Department and Douglas M. McCabe of Georgetown's Management Department have written The Ethics of Payments: Paper, Plastic, or Bitcoin?  Here is the abstract:

Individuals and businesses make billions of payments every day in various forms. Payers have choices about what forms of payment they will make, and payees also have some flexibility on what they will accept. Different forms of payment involve different costs and benefits for both the payer and the payee.  Can it be unethical to use a particular form of payment? Can a payment system like bitcoin be “evil,” as charged by Krugman (2013)?  Or does it provide a means for a more trustworthy means of payment? What are the ethical implications of paying workers with one form of payment, such as a fee-laden payroll card, over another? What are the ethical implications of choosing a payment tool, such as a rewards credit card, that imposes higher costs on the merchant?  The differential nature of bargaining power between the users and operators of the dominant payment networks also raise ethical questions regarding the fairness of charges in such asymmetric power situations.  A payment system, like any tool, is not “evil” by itself; it is the use that matters.

In significant victory for tenants, California appellate court interprets Protecting Tenants Against Foreclosure Act to do just that

Last week in Nativi v. Deutsche Bank, the California Court of Appeal applied the federal Protecting Tenants Against Foreclosure Act of 2009 (PTFA) to revive two renters' state-law claims against the bank that bought the property they were renting.

Rosario Nativi and her son Jose Perez had been living in their home in Sunnyvale, California, for several years under a series of rental agreements, when ownership changed hands because of a foreclosure. Deutsche Bank, the new owner, evicted Rosario and Jose, threw their belongings into the backyard and destroyed them, and refused to let them back into their home (enlisting the police to help keep Rosario and Jose out). Rosario and Jose sued, asserting (among other things) wrongful eviction and related state-law torts. The trial court granted summary judgment to the bank, concluding that the foreclosure sale extinguished the lease with the prior owner, and with it, the rights of Rosario and Jose as tenants.

In last week's decision, the appellate court reversed, holding that the PTFA "causes a bona fide lease for a term to survive foreclosure through the end of the lease term subject to the limited authority of the immediate successor in interest to terminate the lease, with proper notice, upon sale to a purchaser who intends to occupy the unit as a primary residence." As a result, when a bank acquires a property through foreclosure, it does so subject to the terms of the tenants' lease from the prior owner. 

 

The door revolves

William Alden explains that Shiela Bair, former Chair and board member of the Federal Deposit Insurance Corporation, has joined the board of the Spanish bank Banco Santander. She left the FDIC in 2011 and said the next year in her book about the financial crisis that “I would like to see financial regulation be viewed as a lifelong career choice – similar to the Foreign Service – rather than a revolving door to a better-paying job in the private sector. ... There should be a lifetime ban on regulators working for financial institutions they have regulated.” Santander is headquartered in Spain, but according to Alden, "has extensive operations in the United States, with $50 billion in deposits and 705 branches. That division is supervised by the F.D.I.C. in a back-up capacity. The company also owns a bank in Puerto Rico that is regulated by the F.D.I.C. and local authorities."